Sell v Royalty

Sell Informational Articles v Informational Article Royalty

Should you sell your written material or receive royalty payments?

We believe the potential offer of buyout to your authorship rights for any of your final version freelance technical writing product(s) may be more advantageous to you than offering a royalty arrangement contract. This is because of two viewpoints. First, it is likely that the nature of the material being offered and considered for buyout will probably not bring fame and fortune. This is because the material is not considered entertaining, nor does it offer a sense of escapism to the reader such as a mystery novel might offer. Put another way, it is not likely that any given technical material, oriented to industrial practices, will be headlined on an institutional bestseller list or made into a movie.

The second issue is the time-value concept of money. A sum of money today (the Present Value) is worth more than that sum of money received in the future. Something purchased today will likely cost more a year later at the same quantity or, we get less a year later for the same amount of money spent today. To better illustrate the good deal, royalty payments or buyout, suppose the following two offers are made for an article you authored:

Sell your authorship rights and receive 500 in cash.

Retain authorship rights and receive up to 200 cash as a royalty, at the end of each year.

Now suppose the article you get paid for writing is fair market valued at the offered price. You also think a cash royalty payment of up to 200 (after publisher expenses) at the end of each year is the better deal, if steady demand for your article is sustainable. After the third year however, there is the possibility your article may no longer be marketable. It may reflect outdated information. It is also possible the publisher’s expenses result in zero royalty payments at the end of the third year. Being optimistic however, 600 in cash as the total annuity does look like the better deal.

To determine which offer, royalty versus buyout, is the better deal we need to determine our cost to borrow money. Perhaps one of our credit card statements is helpful. In this example, we shall use a bank credit card annual rate of 12.99%. Given the concept of Present Value (PV) analysis then, as if a sum of money is in our pocket today, we want to analyze the present worth of money that we expect to receive in the future. The PV of 500 in cash is still 500 cash because it is received immediately as the authorship buyout. The three annual year-end payments of 200 in cash is PV summed at 472. In long form, it is

177 as the PV for the first year-end royalty payment of 200 cash plus

157 as the PV for the second year-end royalty payment of 200 cash plus

138 as the PV for the third year-end royalty payment of 200 in cash.

472 as the PV sum

For the given example, you have greater spending power in today’s terms (500 versus 472) if the buy-out option is exercised. The buying power of 600 in cash received over three years is worth 472 in today’s terms. Then if the royalty income steam over the three years is actually less than the expected 200 in cash per year, the buy-out option issue becomes more obvious. Receiving 500 in cash today is worth more than receiving around a 500 cash sum over a three-year period.

Freelance technical writers are not often made aware of the time value of money unless they perhaps won a lottery and sought professional advice (lump sum now versus payments over time), and may be shortchanged as a result. Here at Mecanamix, we desire that you get paid for writing and selling your freelance technical materials and be compensated at fair market value for your expertise. Find out how you may submit your freelance technical writing to us at our first e-mail contact page.

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